Vale Says Shareholders Seeking Replacement for CEO Agnelli

April 1 (Bloomberg) -- Vale SA, the world´s largest iron-ore producer, said its controlling shareholders are seeking to
replace Chief Executive Officer Roger Agnelli after he was
criticized for not spending enough on some Brazilian projects.

The Valepar SA shareholder group hired an international
recruitment consultant to help draw up a list of three possible
candidates to succeed Agnelli, 51, once his term expires in May,
Rio de Janeiro-based Vale said in a statement late yesterday.

Agnelli´s ouster follows months of speculation about his
position under President Dilma Rousseff, after the Brazilian
government criticized Vale for not investing more in the
country. Brazil, which holds direct and indirect stakes in the
company, argued that Agnelli should spend more in the steel,
shipbuilding and fertilizer industries to create jobs instead of
focusing on supplying iron-ore and other raw materials to China.

“It appears this saga has taken one step closer to an
end,” Jonathan Brandt, an equity analyst at HSBC Holdings Plc
in New York, said today in a note to investors. “While the
noise surrounding a potential CEO change will abate, the
political risk surrounding Vale has increased and will most
likely remain at a heightened level for some time,” he wrote.

Brazil pension funds Funcef, Previ, Petros and Funcesp hold
49 percent of Valepar SA. Other shareholders of Valepar include
Bradespar SA, the holding company of Banco Bradesco SA, Mitsui &
Co. and BNDESPAR, a subsidiary of the Brazilian state-owned
development bank BNDES, which also has a direct stake.

Golden Shares

Apart from its presence through BNDES and the pension funds
of state-owned banks, the Brazilian government also owns 12 so-called golden shares in Vale that give it veto powers over
certain decisions such as changing the location of the company´s
headquarters or its corporate purposes.

Vale fell 23 centavos, or 0.5 percent, to 47.16 reais in
Sao Paulo trading at 10:27 a.m. New York time. The stock
declined about 2 percent this year, compared with a 0.3 percent
loss for the Bovespa benchmark index.

Vale fired 1,300 employees, said that 5,500 more would be
put on paid leave and pared its investments by about half to $9
billion, from an announced $14.2 billion, during the global
recession two years ago. The decision was criticized by then-Brazilian President Luiz Inacio Lula da Silva, who said the
company had “no reason” to cut spending because it had “lots
of cash” to help the domestic economy resume growth.

Faced Criticism

Agnelli also faced criticism from the Brazilian government
for buying ships in China when Brazil was setting up its own
shipyards. The former president urged Vale to spend more on
fertilizers and between April and September of 2009 he asked the
company to build steelworks at least half a dozen times.

“I’m not irritated with Vale,” Lula said in an interview
with Brazilian financial daily Valor Economico at the time.
“I’ve insisted, systematically, that Vale builds steelworks in
Brazil. Vale can no longer afford the luxury of just being an
iron-ore exporter.”

President Rousseff also complained about Vale’s focus on
selling raw materials abroad as Lula’s cabinet chief, saying
that the company should be subject to government “controls.”

“I cannot agree with the fact that Vale exports iron ore
to China at the same time that we import crude steel and
products,” Rousseff told Epoca magazine last year. “That’s not
a relationship that interest us as a nation,” she said.

Belo Monte Project

More recently, Brazil’s Energy and Mining Minister Edison
Lobao said that Vale was one of the companies interested in
becoming a partner of the Belo Monte dam project, according to
local newspapers. The company said March 25 that it was still
assessing the project and that it hasn’t yet made a decision.

Vale reacted to the government’s demands by increasing some
investments in the steel and fertilizers businesses. The company
opened a steel joint venture in Rio de Janeiro state with
ThyssenKrupp AG in June and will start developing two new steel
projects later this year. The company also spent $5.8 billion
during 2010 buying fertilizer assets as part of a plan to almost
triple potash and phosphate rock output by 2015.

Still, investment in steelmaking will account for less than
3 percent of Vale’s capital expenditures this year, with
fertilizers taking 10.4 percent. Vale’s strategy will continue
to be focused on minority stakes in steel joint ventures with
the goal of becoming exclusive supplier of iron ore and pellets
to such projects, it said Oct. 28.

Record Investment

Vale plans to invest a record $24 billion this year, about
64 percent of it in Brazil, as it seeks to boost iron-ore
production to 522 million metric tons by 2015. The company
budgeted 73 percent of its $11 billion investment during 2008 to
Brazil, according to regulatory filings.

“Whoever is CEO can in our view expect to face increased
political pressures,” UBS AG analysts led by Rene Kleyweg said
March 28 in a note to clients.

Agnelli, who succeeded Jorio Dauster in July 2001, oversaw
more than $84 billion in investments and acquisitions during his
decade-long tenure as head of Brazil’s biggest exporter. The
company posted 2010 profit of $17.3 billion, which Vale said was
the most ever for a mining company.

An economist trained at Fundacao Armando Alvares Penteado
of Sao Paulo, Agnelli started his career at Banco Bradesco SA,
Brazil’s second-biggest bank by market value, in 1981, becoming
an executive director in 1998 and chairman of Vale’s board of
directors in 2000. Since his arrival, Vale spent about $33.3
billion to acquire companies, including Canadian nickel miner
Inco Ltd. in January 2007 for C$19.4 billion ($20 billion). Vale
sold units and made divestitures amounting $3.95 billion during
the same period, according to the company’s website.

Vale Privatized

“For the government, the issue is that Vale was privatized
and has been doing pretty well, has been growing a lot, but now
they want Vale to give more back to Brazil,” Erasto Almeida, an
analyst with the Eurasia Group in New York, said in a telephone
interview on March 24. “It’s more like, ‘we want Vale to do
more in terms of helping to generate jobs in Brazil, helping
with the government’s industrial policies’.”

Vale’s controlling shareholders may choose Tito Botelho
Martins, head of the company’s base metals unit, to replace
Agnelli, Valor reported March 24, without saying where it got
the information.

Vale shares have risen more than 10-fold in Sao Paulo
trading since July 11, 2001, the day before Agnelli was named
CEO, more than twice the fourfold gain for Brazil’s benchmark
Bovespa index as iron-ore output and commodities prices surged.
The company is now the world’s second-largest mining company by
market capitalization after BHP Billiton Ltd., with a value of
about 273.7 billion reais ($167.7 billion).

“Everything is going very well and the trend is
positive,” Agnelli said Feb. 25 on a conference call with
analysts. “We are going to be the best mining company in the
world, and to be the largest one.”